CMA Final · Cost and Management Audit · Forensic Audit
A forensic auditor of a manufacturing firm runs a digit-frequency test on thousands of vendor invoice amounts and finds the first digit 9 appears far more often than expected, while 1 appears much less than expected. Which technique is being applied and what does the result suggest?
It is Benford's law analysis. Natural data show digit 1 leading about 30 percent of the time and 9 rarely, so a heavy excess of 9s signals possible manipulation or fabricated invoices that warrant detailed follow-up investigation.
- ABenford's law analysis; the data may be manipulated or fabricated and needs further examinationCorrect
- BRatio analysis; the firm has high liquidity
- CRegression analysis; costs are fixed in nature
- DStratified sampling; the population is homogeneous
Explanation
Benford's law predicts that in naturally occurring data, the leading digit 1 appears about 30% of the time and larger digits progressively less. A heavy skew toward 9 is an anomaly and flags possible fabricated or manipulated figures, though it is only an indicator needing follow-up. The other options describe different techniques that do not relate to leading-digit frequency.
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